The Economics of Soil Erosion: Theory, Methodology and Examples by Edward B. BarbierPaper based on a presentation to the Fifth Biannual Workshop on Economy and Environment in Southeast Asia (Singapore, November 28-30, 1995) Edward B. Barbier Dept of Environmental Economics and Environmental Management University of York, Heslington, York YO1 5DD, UK 1. Introduction Soil is an essential input to farming. This is especially true throughout Southeast Asia (SEA), where agricultural production is crucial to development, the livelihoods of the majority of the population depend on the primary sector, and non-labour inputs for the poorest farms are negligible. And yet agricultural land use in SEA countries often results in the degradation of natural soil fertility and reduced productivity. Soil degradation under farming also inflicts external or off-site costs, through the processes of erosion, sedimentation and leaching. The impacts of land degradation and the depletion of soil resources have profound economic implications for low income countries. Environmental damage results in loss of current income and increased risk, and particularly affects the poor. Degradation of land resources also threatens prospects for economic growth and future human welfare. In the developing countries, empirical research on the economic costs of land degradation is confined largely to analysis at the level of individual farms or watersheds. On-site impacts are most frequently studied, typically by analysis of the effect of soil loss on crop production. Limited data suggest that the impact of soil erosion on crops may be more dramatic in the tropics than under temperate conditions, due to the relative fragility of tropical soils, or more extreme climatic conditions (Lal 1981 and 1987; Stocking 1984). The off-site impacts of land degradation are often much harder to evaluate, because the off-site benefits provided by land resources are not traded at all. The available evidence indicates that the costs of land degradation, and thus the benefits of conservation, may be substantial in developing countries, despite relatively low average returns to http://203.116.43.77/publications/specialp2/ACF2B4.html Page 1 of 29

The Economics of Soil Erosion: Theory, Methodology and Examples

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agriculture. Estimates of the cost of land degradation in these countries vary from under 1% to over 15% of GNP (Barbier and Bishop 1995). However, these calculations are often more illustrative than definitive, due to the paucity of empirical data and various methodological problems. Moreover, attempts to estimate the costs and benefits of soil conservation on a regional or national level confront serious methodological problems (Stocking 1987). The purpose of the following paper is to provide an overview of an economic analysis of soil erosion, concentrating particularly on explaining the farm-level economics of soil erosion and discussing with examples the appropriate methodology for measuring on and off-site costs. 2. The Farm-Level Economics of Soil Erosion To understand fully why some farmers may decide to invest in soil conservation whereas others may not requires adopting an economic approach to soil erosion. Soil is essentially a semi-renewable resource. Although one could argue that topsoil accretes, it does so at an extremely slow rate. In general, the rate at which topsoil is degraded' or 'eroded' through cultivation is generally faster than the rate at which it regenerates. Thus soil in agriculture is usually treated as a potentially depletable resource, and it is generally assumed that most farming practices will result in rates of erosion that will exceed the natural' or background' rate of soil erosion that would occur if no cultivation took place. From an economic perspective, soil conservation implies saving' soil for future use....

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